Spanish yields higher again

Spanish bonds are again the focus as their 10 yr yield is back above 6% to the highest since Dec 1 and 5 yr CDS is touching 520 bps, a new record high and just 50 bps from Hungary. Italian yields are moving up too and while CDS is well below the highs of Nov ’11, they are only 20 bps from where Lebanon is trading. In Asia, Chinese officials over the weekend widened the range that the yuan can trade off the daily reference rate to 1% from .5%. In contrast to the broad consensus that the yuan can only rally, it fell to a 4 week low in response as the trade is no longer one way. A day before the RBIndia meets on interest rates, wholesale inflation rose 6.89% y/o/y, above expectations of 6.65%. The RBI maybe hinting they won’t focus on growth more than inflation by cutting rates tomorrow, as today they are saying its ‘necessary to keep inflation expectations anchored and monetary policy mustn’t exacerbate inflation.’ It is sticky inflation that is keeping both China and India from getting more aggressive in using monetary policy to boost growth. From an economic bellwether standpoint, copper is trading at the lowest level since mid Jan on a closing basis but is off its lows of the morning.

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